Yahoo Finance Is Bunzl plc (LON:BNZL) A Financially Sound Company?
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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Bunzl plc (LON:BNZL), with a market cap of UK£7.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine BNZL’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into BNZL here.
Check out our latest analysis for Bunzl
Does BNZL Produce Much Cash Relative To Its Debt?
BNZL has sustained its debt level by about UK£1.9b over the last 12 months which accounts for long term debt. At this constant level of debt, BNZL currently has UK£478m remaining in cash and short-term investments to keep the business going. Moreover, BNZL has produced UK£480m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 26%, indicating that BNZL’s current level of operating cash is high enough to cover debt.
Does BNZL’s liquid assets cover its short-term commitments?
Looking at BNZL’s UK£2.1b in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of UK£3.0b, with a current ratio of 1.43x. The current ratio is the number you get when you divide current assets by current liabilities. For Trade Distributors companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BNZL service its debt comfortably?
BNZL is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In BNZL's case, the ratio of 9.35x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving BNZL ample headroom to grow its debt facilities.
Next Steps:
Although BNZL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure BNZL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Bunzl to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BNZL’s future growth? Take a look at our free research report of analyst consensus for BNZL’s outlook.
Valuation: What is BNZL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BNZL is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
